Income Tax Appellate Tribunal - Amritsar
The Dy.Commissioner Of Income-Tax, ... vs M/S Sifti Rice Mills,, Amritsar. on 26 May, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
AMRITSAR BENCH; AMRITSAR.
BEFORE SH. T. S. KAPOOR, ACCOUNTANT MEMBER
AND SH. N.K. CHOUDHRY, JUDICIAL MEMBER
ITA No.764/(Asr)/2014
Assessment year: 2011-12
PAN: AAPFS6697G
Deputy Commissioner of Vs. M/s. Sifti Rice Mills,
Income Tax, Khasa Road, Vill- Kathana,
Central Circle, Amritsar. Distt. Amritsar.
(Appellant) (Respondent)
Appellant by : Sh. Rahul Dhawan (Ld. D.R.)
Respondent by: Sh. Salil Kapoor (Ld. Adv.)
Date of hearing : 27/02/2017
Date of pronouncement : 26/05/2017
ORDER
PER N. K. CHOUDHRY (JM):
This is an appeal filed by Revenue Department, aggrieved against the order dated 17.10.2014 in Appeal No. 379/IT/CIT(A)-
1/Ludhiana/2013-14 passed by the Ld.CIT(A) No. 1 Ludhiana for Asst.
Year 2010-11.
2. The appellant has raised the following grounds of appeal:
1. Whether on the facts and circumstances of the case the decision of CIT(A) is correct in deleting the addition of Rs. 82,21,420/- made towards trading results by ignoring the detailed reasons recorded by the Assessing Officer in his assessment order.
2. Whether on the facts and circumstances of the case, Ld. CIT(A) is correct in assuming that since the Auditors have not pointed any discrepancies in the books of the assessee, no further investigation/inquiry was required to be made by the Assessing Officer during the assessment proceedings.2 ITA No.764/Asr/2014
Asst. Year: 2011-12
3. Whether on the facts and circumstances of the case, Ld. CIT(A) is correct in not appreciating the reasons for the rejection of trading results of the assessee.
4. The Appellant craves leave to add or amend the grounds of appeal on or before is heard and disposed off.
5. It is prayed that the order of the Commissioner of Income Tax (Appeals), be set-aside and that of the Assessing Officer be restored on merits."
3. The brief facts of the case as reflects from the assessment order are as under:
The return in this case was E-filed on 29th September, 2011 as it declaring an Income of Rs.32,00,130/-, and the case was selected for scrutiny under CASS and statutory notices u/s 143(2) and 142(1) were issued along with questionnaire. During the course of examination of the case it was noticed that during the year, there has been a drastic fall inn the G.P. rate declared by the assessee from 14.30% in the last year 2005 were in this year.
It was observed by the Assessing Officer that it appears the sanctions imposed against Iran were the sole cause of the lower G.P. of the assessee, despite the fact that the assessee himself was not an exporter. It also indicates that Iran is the sole import of Indian rice. In order to further verify the submissions of the assessee, vide order sheet entry order dated 23 of August 2013, the assessee was again asked to furnish:-
1. Partners capital accounts with sources of additions.
2. Quantity of milling of outside parties and position regarding bye products of that milling.
3. Percentage yield chart of bye products on self milling and outside milling. Rates of sale of bye products.
4. No husk production or sale shown, reasons thereof. If consumed, records if any for the same.
5. Complete records of consumption of raw material and production of furnished goods.3 ITA No.764/Asr/2014
Asst. Year: 2011-12
6. Comparative chart of this year and last year about quantity and value of sales and rate of the same.
In response to the notice as treated above, the assessee filed a reply dated 9th September, 2013 in order to clarify the issues thereafter, the Assessing Officer after consideration of the reply has observed and concluded as under:
"There is some force and logic in the arguments put forward by the assessee. But still there are various issues which are also behind the drastic fall in the G.P. rate as compared to the last year. Viz:-
1. The yield of Sharbati rice is shown only at 63% as against the normal yield of 66%.
2. The yield of Rice bran and Thin Phuk varies between 3% to 4% as against the normal yield of about 5%.
3. There is no account of Husk production or consumption which is a substantial bye product of milling.
4. The records for consumption of raw material and production of finished products as maintained by the assessee are totally unreliable.
5. There has been an increase in production expenses like labour and machinery repair despite fall in production as claimed by the assessee.
6. The valuation of closing stock has been made arbitrarily and shown at lesser rate than closing stock despite increase in production expenses.
7. There are additions to the capital accounts of the partners which are claimed to be out of their personal balance sheets which are totally unreliable and even they do not properly explain the sources of cash and despite several opportunities the assessee could not furnish a fool proof evidence regarding the sources of cash introduced. The position regarding cash introduced in capital accounts and cash in hand as per alleged balance sheets is as under:-
Name of partner Cash Introduced Opening C.I.H. Closing C.I.H. Satish Kumar Rs. 2,00,000 Rs. 1,95,891 Rs. 1,09,422 Vinod Kumar Rs. 1,00,000 Rs. 1,22,213 Rs. 27,393 The above chart is only indicative of the state of affairs of the assessee though no separate addition for the above is being made.
In view of the above facts of the case, it is apparent that the trading results of the assessee are not fully reliable although some credit has been given for the various explanations put forth by the assessee. However considering the various 4 ITA No.764/Asr/2014 Asst. Year: 2011-12 discrepancies noticed in this case the G.P. rate of 9.53% shown in the return is not acceptable and an addition of 2% is being made to the same which works out to Rs. 82,21,420/-. This reflects the concealed income of the assessee which was not reflected in the return by making various manipulations as discussed above. Therefore, I am satisfied that the assessee has concealed his particulars of income to the above extent and hence penalty u/s 271(1)( c) is also being initiated.
Accordingly the income of the assessee is being computed as under:-
Returned Income =Rs. 32,00,130/-
Add:- Addition as above =Rs. 82,21,420/-
Total Income = Rs. 1,14,21,550/-"
4. Feeling aggrieved by this assessment order, the assessee
preferred the first appeal before the Ld. CIT(A), and re-agitated the
contentions as raised during the assessment proceedings and explained the reasons for fall in the G.P. rate and wrongly rejection of trading result by the Assessing Officer.
The Ld. CIT(A) finally deleted the addition quo GP @ 2% as determined by the Assessing Officer.
5. Feeling aggrieved by the said order passed by the Ld. CIT(A), the Revenue Department preferred the instant appeal which is under consideration.
6. The Ld DR in support of its case argued that the decision of the Ld. CIT(A) is not correct in deleting the addition of Rs.82,21,420/-made towards trading results by ignoring the detailed reasons recorded by the AO in his assessment order. The Ld. CIT(A) was not correct in assuming that since the Auditors have not pointed out any discrepancies in the 5 ITA No.764/Asr/2014 Asst. Year: 2011-12 books of the assessee, no further investigation/inquiry was required to be made by the AO during the assessment proceedings, and he was not correct in not appreciating the reasons for the rejection of trading results of the assessee. In the instant case no records/details of production or consumption of paddy husk were produced despite a specific query to this effect by the Assessing Officer and details if any maintained then it was not properly maintained. Further the Ld. DR emphasized whereas the assessee was claiming that during the year, there was a slump in business due to the international factors but on the other hand, there was not much fall in turnover and the electricity expenses had also been reduced only marginal rate, rather there was an increase in expenses under labour and machinery repair for which there was no explanation and the assessee was not maintaining proper records of consumption of raw material and production of finished products especially bye products of milling, it was further argued by the Ld. DR that the assessee expenses are more than the purchase price and the price does not apply universally because it changes every year independently and it is a matter of fact that no stock register was maintained, further the Ld. DR expressed that the Assessing Officer correctly added 2% because from the trading result of the assessee it is apparent that the trading results of the assessee are not fully reliable although some credit has been given for the various explanations put forth by the assessee. Further Ld. DR relied upon the judgment passed by the jurisdictional High Court in the case of Harish Ahuja Vs. Commissioner of Income Tax citation 2015 (93) CCH 0239 PHHC and submitted that the jurisdictional High Court has clearly held that in the absence of stock register, the rejection of books of accounts is correct and justified.6 ITA No.764/Asr/2014
Asst. Year: 2011-12
7. On the other hand, the Ld. AR controverted the contention of the Ld. DR and argued that all purchases and sales are fully vouched and daily stock tallies were maintained for all the qualities of Paddy & Rice i.e. PARMAL, SHARBATI, NO. 1121 AND BASMATI. The statements showing day to day detail of purchase of Quality-wise Paddy and day to day statements showing production of rice etc. were duly filed by the Assessing Officer along with the yearly stock tallies of all the qualities. The contention of the DR is not correct that no stock registers have been maintained.
The Ld. AR further argued that the assessee had demonstrated reasons for fall in the G.P. rate in correct manner as the assessee is not a direct exporter and direct exporters are either purchasing rice from the assessee or got their Paddy milled (job work) through the assessee and their main exports were to Iran and Iraq, during the start of F.Y. 2010-11, various sanctions were imposed by U.S.A./ united Nations against Iraq. There was a drastic change in the job work as compared to last year and the assessee's profit had fallen due to that. The Ld. AR further submitted that detail of party-wise job work done during this year as compared to the same of last year is also demonstrated to the Assessing Officer and further submitted that the fall in G.P. rate was due to market condition and International Politics over which the assessee has no control and even otherwise that the Ld. Assessing Officer had agreed that there was some force and logic in the arguments put forward by the assessee however, the Assessing Officer made the addition by mentioning 7 reasons which the assessee has properly explained. However, the Assessing Officer taken the contrary view which is at all illogical. It was further argued that the Assessing Officer has 7 ITA No.764/Asr/2014 Asst. Year: 2011-12 accepted the account books of the assessee and has completed the assessment order u/s 143(3) and the fall in the G.P. Rate was fully explained, therefore, the addition in the trading Account was uncalled for, further it was submitted that the Ld. Assessing Officer, by and large, accepted various reasons given for fall in the G.P. Rate but still the addition has been made by calculating the same @ 2% of sales, therefore, this approach is arbitrary, merely based on surmises & conjectures and without prejudice to the rights of the assessee is exorbitantly excessive. It was further argued by the Ld. AR that CIT(A) has considered the objections of the Assessing Officer and the replies of the assessee and concluded that Assessing Officer proceeded to reject the trading result without pointing out any defect in the books of accounts maintained by the assessee because the assessment has also been framed u/s 143(3) and not u/s 144. The Ld. CIT(A) further held that the assessee has sold Sharbati Rice largely on credit base. The suspicion of the Assessing Officer recording under invoicing was unfounded and further observed that the assessee had started automatic plant installed and the rice husk was being used as fuel through the conveyor belt. The CIT(A) noted in the order that the marginal increase in labour charges was attributable to change packing sought by the client and the machinery repairs were on account of major overall necessitated to maintain and supply the export quality of rice and the machinery repairs expenses were fully vouched and no defect has been pointed out. Further the capital introduced by the partners is also explained and the partners are repeatedly assessed and in their personal cases, the investment made by them is accepted and even otherwise closing stock has been taken at average rate which is an accepted principle of valuation of closing stock. The Ld. AR also filed assessment order pertaining to A.Y. 2010-11 in support of Assessee 8 ITA No.764/Asr/2014 Asst. Year: 2011-12 case. Further the Ld. AR also relied the cases decided by Delhi bench in ITA No.2089/Del/2005 and by ITAT Bench, Mumbai in ITA No.4125/Mum/2012 and judgment passed by the Bombay High Court in ITA No.297/2014 titled as CIT, 25 Vs. Uday. M. Ghare and emphasized that crux of the aforesaid judgments is that the valuation stock at average costs basis is reasonable and justified and the average costs method is one of the accepted methods for valuation of closing stock.
8. All the grounds are interlined therefore the same are taken simultaneously for decision. We have given thoughtful consideration to the submissions of the parties and gone through with the facts and circumstances of the case and cases and documents relied upon the parties. In the assessment order, it reflects that Assessing Officer noticed that during the year there has been drastic fall in the G.P rate which according to our considered opinion the assessee has reasonably demonstrated about fall of the G.P rate because the assessee was not a direct exporter and direct exporters had either purchased rice from the assessee or got their paddy milled (job work) through the assessee because their main exports were to Iran and Iraq and various sanctions have been imposed by the USA/UN against Iraq, therefore, there was a drastic change in the job work as compare to last year and the same was the main reason for fall of the assessee profit. In our view, no contrary material was ever brought by the Revenue against market situation as demonstrated by the Assessee, neither before the authorities below nor before us. Even otherwise the assessee file the comparison for perusal of Ld. Assessing Officer as well as Ld. CIT(A) and even otherwise as the submissions of the assessee as observed by the Ld. CIT(A) that fall in G.P rate due to market conditions and 9 ITA No.764/Asr/2014 Asst. Year: 2011-12 international politics on which the liability cannot be accrued to the assesse. Therefore, the observations of the Assessing Officer was not correct.
Further with regard to the contention of Ld. AR that Ld. CIT(A) was not correct in assuming that since the auditors have not been pointed out any discrepancies of the books of the assessee, therefore, not further enquiry was required to be made by the Assessing Officer during the assessment proceedings and he was not correct in no appreciating the reasons for the rejection of trading results of the assessee. This contention has been specifically dealt with by the Ld. CIT(A) in his order by which it is clear that he has considered various issues qua book results and its clarifications by the assessee during the assessment proceeding and even otherwise from the assessment order, it reflects that the Assessing Officer after considering the clarification by the assessee on the issues raised by the Ld. Assessing Officer, was justified to some extent as recorded in the assessment order but proceeded to reject the trading result without pointing out any defect in the books of accounts maintained by the assessee and even otherwise the assessment has been framed u/s 143(3) but not u/s 144 therefore, the contentions of the Ld. DR don't have force for taking contrary view.
With regard to the contentions of the Ld. DR that in the absence of stock register, the rejection of books of account is correct in accordance with the judgments passed by the jurisdictional High Court in the case of Harish Ahuja Vs. CIT, in ITA No.196/2015 (2015) 93 CCH 0239 PHHC. In the instant case, the assessee has maintained proper books of accounts in which no defects have been found by the Assessing 10 ITA No.764/Asr/2014 Asst. Year: 2011-12 Officer. Even otherwise the accounting results as per profit/loss account and trading account prepared by the assessee does not deserve rejection unless and until some defects pointed in the books of account. Therefore, it is not the case here that in absence of stock register, the books of account as liable to be rejected, specifically, in the assessment of the previous years, the Department accepted the same trading result of gross profit ratio even otherwise the G.P ratio of A.Y.2007-08 and 2008-09 is similar to the G.P ratio of A.Y.2011-12 and the complete bills /vouchers, quantity records and complete books of accounts are in correct form and duly produced before the authorities below from time to time and even otherwise the assessee had maintained complete stock tallies of all purchase, productions and sale and inventories of opening and closing stock and furnish the same on record and further all purchase and sales were fully vouched and history of trading account was accepted in the past and no addition in trading account was ever made and even otherwise the other Co-ordination Benches of Mumbai and Delhi dealt with the same identical matter with regard to the following of average costs method as one of the accepted methods for valuation of closing stock. Therefore, we do not have any hesitation to hold that the assessee in the relevant A.Y followed average costs method of valuation of closing stock which is accepted as one of the accepted method.
Further with regard to the contention of the Ld. DR that assessee was claiming that during the year, there was a slump in business due to international factors but on the other hand, there was not much fall in turnover and the electricity expenses had also been reduced only on the marginal rate and rather there was an increase in expenses under labour, and machinery repair for which there was no explanation and 11 ITA No.764/Asr/2014 Asst. Year: 2011-12 the assessee has not maintained proper records of consumption of raw material and production finished products especially bye product of milling and even otherwise the assessee expenses are more than purchase price and the price does not apply universally because which changes every year independently and it is matter fact that no stock register was maintained. In our considered view, the Ld. CIT(A) thoroughly considered the submissions of the assessee to the effect that during the assessment year 2011-12, there was acceptance of heavy losses by the other similar industries as of the assessee due to restrictions imposed by the U.S Govt. on Iran who is the main consumer of rice of the assessee and for that reason the assessee decided to remain away from the market and purchasing in the relevant assessment year was only of Rs.8.8 Crores as against purchase of Rs.43.60 Crores in the previous Financial year and the assessee sold its brought forwarded stocks at the lower average price as compared to loss year and the same is also evident from the comparison of costs of sale Vs. sale price chart and the Assessee also seeing the heavy rate of paddy during the crop season of F.Y. 2010-11 and restriction on Iran, most of the exporters including the assessee reduced their business which affected the shelling rate adversely and on the other hand increase in the rate of buyer, fuel, labour and consumable which affected the net profit from shelling also.
On the aforesaid observation, we do not find any reasons to interfere with the order passed by the Ld. CIT(A) and in our considered view, the appeal filed by the Revenue/Department is liable to be dismissed, specially in view of the fact that the Assessing Officer proceeded to reject the trading result without pointing out any defects in the books of accounts maintained by the assessee because the assessment has framed u/s 143(3) and secondly the average cost 12 ITA No.764/Asr/2014 Asst. Year: 2011-12 method which is reasonable and justified and followed by the assessee from year after year and recognized as one of the accepted methods for valuation of closing stock by various Co-ordination Benches as well as High Courts.
9. In the result, the appeal filed by the Revenue/ Department stands dismissed.
Order pronounced in the open Court on 26.05.2017.
Sd/- Sd/-
(T. S. KAPOOR) (N.K.CHOUDHRY)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated: 26.05.2017.
/GP/ Sr.Ps.
Copy of the order forwarded to:
(1) The Assessee:
(2) The
(3) The CIT(A),
(4) The CIT,
(5) The SR DR, I.T.A.T.,
True copy
By Order